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The Rational Anticipations Regarding”Inflation - Unemployment” Trade-Off

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  • DUTCAS, Monica Florica

    (Centre for Financial and Monetary Research “Victor Slavescu”, N.I.E.R., Romanian Academy, Bucharest, Romania)

Abstract

The paper starts from the premise that rational expectations theory invalidates the Philips Curve by demonstrating that monetary policy is long-term ineffective in terms of unemployment. The argument of the paper is the need to evaluate the trade-off inflation unemployment in the literature and how it verifies the precision of the Philips Curve model for better prediction of inflation and unemployment and their relationship. Identifying the Philips Curve is important when designing macroeconomic policy strategies on inflation, unemployment, economic growth, the shape of the curve being crucial to the direction of economic policy. Inflation and unemployment are structural components of market economy, each of them constitutes dangerous macroeconomic dis-equilibriums, and in the Romanian economic evolution, in certain periods, we can consider that each of them exhibited major threats for development and progress. Some conclusions are presented regarding the data which verify the short term Philips Curve model precision in order to show the signification of the relationship between inflation and unemployment on 1990 – 2017 period for Romania and the possible consequences on the strategic macroeconomic policies.

Suggested Citation

  • DUTCAS, Monica Florica, 2018. "The Rational Anticipations Regarding”Inflation - Unemployment” Trade-Off," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 6(1), pages 55-62, October.
    • Handle: RePEc:vls:rojfme:v:6:y:2018:i:1:p:55-62
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    References listed on IDEAS

    as
    1. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
    2. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
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    4. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    5. Albu, Lucian Liviu, 2004. "Estimating Nairu For The Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 1(2), pages 5-19, May.
    6. Olivier Blanchard, 2006. "European unemployment: the evolution of facts and ideas [‘The macroeconomics of low inflation’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(45), pages 6-59.
    7. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series 1998-43, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Rational expectations Theory; Philips Curve Model; inflation; unemployment; Romania;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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